City attorney: San Bernardino council didn't approve $11M contract

SAN BERNARDINO -- The then-head of San Bernardino's Economic Development Agency signed a six-year, $11-million agreement with a local company without the knowledge or approval of elected officials, City Attorney James F. Penman said during Monday's City Council meeting.

A copy of the agreement bears the signature of Executive Director Emil Marzullo and is dated April 25, 2010, for San Bernardino-based Theatrical Arts International to run the California Theatre and Sturges Center for the Fine Arts until 2016.

"Council members, the mayor and the mayor's chief of staff have all said they never saw this contract," Penman said. "We certainly never would have approved it if we had seen it, because it's a very bad agreement. "

Marzullo said Tuesday that the document was a draft and was not submitted for approval because it wasn't ready for approval. Instead, he said, the company has operated under verbal modifications to the previous contract since it expired.

He accused Penman of misleading and playing politics based on a dislike of Mayor Pat Morris and the theater complex.

"If it was a final draft, it wouldn't have my initials on the bottom of every page," Marzullo said. "(Penman) should know that. For him to say otherwise, he's either a liar or an idiot. "

Penman said a draft should say "draft," while signatures indicate a final agreement.

The head of TAI said he was under the impression the agreement was official until 2012, when they brought up the contract with then-Acting City Manager Andrea Travis-Miller and she said it hadn't been approved.

And the contract was followed, at least until the city filed for bankruptcy in August, said TAI President Joseph Henson.

The board would have approved an annual EDA budget that included payment for California Theatre and the Sturges Center.

Henson said he has no quarrels with anyone from the city.

"Everybody that we work with over there at the city, we have a great working relationship with them," he said. "The California Theatre is doing very well. "

City Council members and Morris - those who would normally approve any contract, with the exception of two council members who came into office since 2010 - did not immediately respond after Penman spoke. Morris did not return a call Tuesday.

The EDA signed several agreements with TAI over the years, with the most recent amendment extending the term from 2006 through April 30, 2010.

That contract says TAI and the EDA director will develop a budget each fiscal year. By contrast, the 2010 document says the combined budgets for the theater and Sturges Center will be $5.6 million for the term of six years - which could be interpreted as either $5.6 million total or $34 million total.

"It's bad because it's ambiguous," Penman said.

Around the time the previous contract expired, the city transferred EDA properties to a nonprofit corporation called the Economic Development Corporation to avoid Gov. Jerry Brown's plan to force their sale as part of a statewide abolition of redevelopment agencies.

"It was a chaotic time," Marzullo said, to explain why a contract wasn't given to the board for approval when the prior one expired.

More worrying, Penman said, is that the council acting as the EDA board should have voted on the contract. The late discovery throws into question what other liabilities might be connected to the $108 million in properties that the city has been ordered to accept.

State Controller John Chiang said the city's transfer to the EDC was invalid and the city must accept the properties back so they can be sold off.

That should be delayed until it's clear what baggage comes with the properties, which Marzullo was in charge of as executive director of the EDC until his position was dissolved, Penman said.

"The reason the council has not accepted the transfers back to the city and more importantly has not accepted the liability is the council does not know how many of these documents may exist," Penman said. "We've learned from this $11 million contract alone that the fact that we don't find any contract doesn't mean it's not there. "

A search of EDA records for a copy of the contract or others that might not be known continues, Penman said, adding that the decision about whether to accept the properties - which also carry $2.9 million in unpaid taxes, interest and fees that is building - prompted him to mention the contract Monday.